General Electric's Mortgage Unit Cuts 20% of Employees

Discussion in 'Wall St. News' started by ByLoSellHi, Mar 9, 2007.

  1. If you want a future barometer of the housing and refi biz, look no further (there will be NO rebound in housing or HELOC lending):

    General Electric's WMC Mortgage Cuts Subprime Jobs (Update2)

    By Jody Shenn

    March 9 (Bloomberg) --
    General Electric Co.'s U.S. mortgage unit will curtail lending and fire 460 workers, or 20 percent of staff, amid a rise in defaults by people with poor credit.

    WMC Mortgage, the fifth-biggest subprime lender in the U.S., this week stopped making mortgages without down payments or to borrowers with credit scores below 600. WMC last year had $33 billion in new loan volume, according to industry newsletter Inside B&C Lending.

    ``We've realigned our resources to fit the size of the market,'' said Brandie Young, a spokeswoman for Burbank, California-based WMC. The lender is adjusting underwriting policies amid a ``fluid market,'' she said.

    About 10.12 percent of subprime home loans in securities were delinquent by at least 90 days, in foreclosure or already turned into seized property on Dec. 31, up from 5.37 percent in May 2005 and the most in at least seven years, according to a March 2 report from Friedman Billings Ramsey Group Inc.

    New Century Financial Corp., the second-largest subprime lender, yesterday stopped accepting new applications as it works to re-establish financing to fund new loans it plans to sell after losing money last year. The Irvine, California-based company, which also stopped making loans without down payments, cut 300 jobs, or about 4 percent of its workforce, on March 2.

    Rising defaults may add more than 500,000 homes to a residential real estate market already beset by slumping prices, New York-based bond research firm CreditSights Inc. said in a March 1 report.

    WMC Purchase

    Fairfield, Connecticut-based GE, the second-largest company by market value, bought WMC from private-equity firm Apollo Management LP in 2004 for an undisclosed amount. GE had exited the U.S. mortgage business in 2000 by selling its home-loan unit to San Francisco-based Wells Fargo & Co.

    Shares of GE fell 12 cents to $34.33 at 10:41 a.m. in New York Stock Exchange composite trading. The shares are down 7.77 percent this year.

    The $33 billion in home loans made by WMC was up 5 percent from 2005 and included some Alt A loans. Young declined to say how much. Alt A loans fall just short of the credit standards of Fannie Mae and Freddie Mac, two government-chartered companies that purchase mortgages from lenders.

    About 59 percent of outstanding home loans are ``prime,'' about 27 percent are Alt A, and about 14 percent are subprime, according to a Feb. 27 report by Banc of America Securities LLC.

    Subprime mortgages are given to people with poor or limited credit records or high debt burdens and typically have rates at least two or three percentage points above safer prime loans. They made up about a fifth of all new mortgages last year, according to the Washington-based Mortgage Bankers Association.

    About $640 billion of subprime loans were made last year, up from $173 billion in 2001, according to Inside B&C.

    Guidance to banks from regulators on subprime-loan standards announced March 2 should reduce volumes because it calls for lenders to seek more proof of a borrower's ability to meet payments, according to Scott Valentin, an analyst at securities firm Friedman Billings in Arlington, Virginia.